Questions about Retirement
and Investment Money
What does Douglas R. Andrew mean by “All the dogs barking up the wrong tree doesn’t make it the right one”?
Conventional advice on your journey toward financial independence may
not always be the wisest choice. Setting aside money in qualified retirement
accounts, such as IRAs and 401(k)s, while paying down our home mortgage
is like going down the highway with one foot on the brake pedal and the
other on the gas pedal.
In our opinion, there is a better alternative for retirement income and financial independence. With proper planning using the Missed Fortune philosophy, a homeowner can utilize home equity retirment planning that may provide tax advantages during the contribution and accumulation years, and more important, you may enjoy tax-free income during your retirement years and transfer any remaining funds to your heirs tax-free.
Will deferred taxes save me retirement dollars?
Not necessarily. A common myth-conception among retirement-minded Americans is that they will be in a lower tax bracket when they retire than when they were employed. The reality is that most Americans who have saved for retirement will find themselves in a tax bracket at least as high as-if not higher than-they were in during their earning years. That’s because retirees usually have
fewer deductions and exemptions.
Why do the Missed Fortune strategies state that qualified plans, such as IRAs and 401(k)s, do not provide the most attractive retirement benefits?
Most people are motivated to invest in qualified plans for tax-favored treatment during the contribution and accumulation phases of retirement planning. When traditional qualified plans are liquidated in retirement, they produce the taxable results the government predicted and intended. It doesn’t make sense to postpone tax for some perceived advantage in the future. Non-qualified retirement vehicles can provide greater net spendable retirement income.
What is a strategic roll-out and what are the benefits?
Many people come to realize that they are getting trapped in an IRA or 401(k) that someday will be taxed. Continuing to postpone the tax that will be due may dramatically increase the amount of tax you will ultimately pay. We suggest developing a plan to strategically convert your qualified funds to non-qualified accounts at the most opportune time taxwise. This strategic conversion over a five to seven year period may result in up to 60 percent less tax than stringing the tax liability out over a lifetime.
What makes a prudent investment?
There are three elements a prudent investor should look for: liquidity, safety, and rate of return. If an investment also possesses a tax advantage, it is icing on the cake. When considering a particular investment, you would probably see the answers to at least three questions:
- Can I get my money back when I want it back – is my money
going to remain liquid?
- How safe is my money – is it guaranteed or insured?
- What rate of return can I expect to receive?
Why is home equity not a prudent investment?
Home equity is not liquid or safe and has not rate of return. When times get tough those who lack liquidity have no choice but to liquidate their assets (home) at low prices and survive the best they can. If you were in a neighborhood that was devastated by an earthquake, flood, tornado, or hurricane and your home was destroyed, you would rather have your equity in a safe and liquid environment.
What is arbitrage?
The prevalent myth-conception is that there are only two kinds of people in the world: those who earn interest and those who pay interest. There is really a third kind of person: those who do exactly what banks and credit unions do – borrow money at lower interest rate and invest it to earn a higher interest rate. Arbitrage is the lifeblood strategy of nearly all financial institutions and most self-made millionaires have mastered it.
How do I choose the right investments with my cash?
When choosing a place to save, invest, or store cash for conservative, stable returns, we want to ask ourselves the same four questions we ask with regard to our home equity:
- Is it liquid?
- Is it safe (guaranteed or insured)?
- What rate of return am I likely to get?
- Are there any tax benefits associated with this investment?
How does achieving an average return of 7 to 9 percent, nontaxable,
over a ten or twenty year period compare with earning a 10 to 12
percent return and having to pay tax on the gain?
We advise having the more stable, less volatile investment, watching it grow tax-free, and reaping the rewards free of tax on the back end, during the harvest period of life. These characteristics would help achieve your financial goals with a higher net spendable income and greater net accumulation value than other more volatile strategies. For this reason, wise investors are turning more to insurance companies for tax-favored, long-term savings and capital accumulation.
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